Changes to the Reporting Requirements for Insolvency Practitioners on the conduct of directors

News

05

Apr 2016

Changes to the Reporting Requirements for Insolvency Practitioners on the conduct of directors

Why and what is likely to be the impact?

What is happening?

The statutory paper returns on the conduct of directors are being removed in favour of a single digital return which is required within a shorter timescale of three months from the date of insolvency rather than the current limit of six months. It was interesting to discover during the course of my research that the Insolvency Service reports that only 68% of the reports are submitted within the current time limit.

Having listened to the ICAEW webinar on the subject, it is still somewhat uncertain as to the full extent of the questions to be completed within this return, there is currently no sample question bank to review but we are promised the launch of the website soon. The only thing that is clear is that there will be very limited scope for any comments with answers requiring yes/no responses. Indeed, whether a case proceeds will be reliant upon software that assesses a claim on these answers in the first instance rather than the human eye. This approach does not allow for mitigating or contributory factors to be assessed, which up until now could have guided the Service in its decision.

What is the aim?

The Impact Assessment issued by the Insolvency Service lists the following aims:

Streamlining of reporting - the current reporting regime requires legislative changes to adjust and the introduction of the electronic return not only allows easier analysis but also allows for the ongoing development of the return to match the current market situation without the need for further legislation. This is looking to advance the Red Tape Challenge!

Earlier investigation of miscreant directors - by bringing forward the deadline the Insolvency Service are seeking to have more efficient investigations and enforcement outcomes. The system is reliant on the answers to the questions without any supporting evidence and therefore the structure and content of the questions is key to achieving this objective – only time will tell if this will be the case. The Insolvency Service is looking to work more closely with IPs to identify cases which warrant further investigation.

Increasing consumer confidence and protection - they hope to achieve this by an earlier focus on appropriate cases and the aim is to reduce the amount of time spent by IPs on this matter which they have assessed will result in an annual increase in dividends to creditors in the amount of £4.3m pa.

What is the impact?

The new reporting requirements are meant to act in conjunction with the extended provisions of the SBEE detailed below, to give flexibility, and strength to the Directors’ Disqualification Regime or as has been quoted “to give it some teeth”.

What are the “teeth?”

The regime can now look at overseas conduct including but not limited to any criminal offences arising from the promotion, formation or management of any company overseas. But crucially, the courts are now empowered to apply compensation awards to creditors, either individual creditors, groups of creditors or all creditors payable by the disqualified directors.

Conclusions

Directors face an increasing risk of personal liability and therefore we can only stress the need to take advice early in the event of potential insolvency to ensure that proper advice can be received.